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Policy Statement 554 - Tax Reform and Engineering Firms

 
Approved by the Public Policy Committee on March 12, 2019 
Adopted by the Board of Direction on July 13, 2019

Policy

The American Society of Civil Engineers (ASCE) opposes proposals that would modify the tax code to place some engineering firms at a competitive disadvantage, restricting their ability to expand and create jobs. ASCE believes that comprehensive tax reform should treat all business structures equally. 

Issue

Current law enables owners of pass-through entities and sole proprietorships to be eligible for a qualified business income (QBI) deduction - also called Section 199A.  The deduction allows taxpayers to deduct up to 20 percent of their qualified business income (QBI). The deduction can be limited to certain service businesses deemed a specified service trade or business (SSTB). The engineering industry was specifically excluded from the SSTB definition and are deemed a qualified trade or business (QTB) and are not subject to the limitation. Recent tax reform proposals have contained language that would include an engineering business as a SSTB, therefore limiting the QBI deduction available. In addition, there are other proposals to eliminate the QBI deduction for all pass-through entities.

Rationale

The nation's engineering industry ranges from very small, family owned firms to large corporations. These firms represent a variety of business structures, including C corporations and pass-through entities, such as S corporations, limited liability companies (LLC), and sole proprietorships. Under the current law, partners of an S corporation determine how much of their income to classify as wages (subject to generally higher tax rates) and how much as investment income (subject to lower rates). Recent tax reform proposals have contained language that would exclude professional service firms from the lower rate.  This would place some engineering firms at a competitive disadvantage, restricting their ability to expand and create jobs. 

ASCE Policy Statement 554
First Approved 2017

 

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